Poland Bond Yields Decline to Month-Low Before Inflation Data

Poland’s government bond yields fell to the lowest in more than a month before the publication of inflation data tomorrow.

Yields on two-year bonds declined two basis points, or 0.02 percentage point, to 3.33 percent as of 4:28 p.m. in Warsaw, the lowest since Feb. 5. The zloty depreciated less than 0.1 percent to 4.1434 per euro after weakening as much as 0.2 percent earlier.

Inflation slowed to an annual rate of 1.5 percent, matching the lowest since August 2007, in February from 1.7 percent in January, according to the median estimate of 36 economists surveyed by Bloomberg. Poland’s central bank cut interest rates 50 basis points to a record low of 3.25 percent last week. It is ready to reduce them further if economic data is worse than forecast in its projection, central bank Governor Marek Belka said on March 6. The bank assumes economic growth will slow to 1.3 percent this year and inflation will fall to 1.6 percent.

The zloty will “weaken slightly” in the coming months as the Monetary Policy Council will return to “soft rhetoric” and because of ‘disappointment with poor data”, ING Bank Slaski SA economists, led by Rafal Benecki, wrote in a note today. They expect the currency to weaken to 4.18 per euro in the next one to three months and to 4.22 per euro in the next six months.

Poland is still seeing inflows of foreign capital into its debt and does not see a risk of investors exiting, deputy Finance Minister Wojciech Kowalczyk told reporters in Warsaw today, after international investors increased their holdings of local-currency government bonds and bills by 5.1 billion zloty ($1.6 billion) to a record 195.6 billion zloty in January.

Polish monetary policy remains “restrictive,” even after 150 basis points of interest-rate cuts, and may require a further reduction in borrowing costs this year, policy maker Elzbieta Chojna-Duch told TVN CNBC in an interview yesterday.

The inflation data will be published by Poland’s Central Statistical Office at 2 p.m. tomorrow.

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